This paper discusses trends in capital taxation and the role of the corporate tax rate in a welfare state. It provides a summary of the tax competition literature with special application to capital taxation in small versus large countries. A main finding from this literature is that small countries set lower taxes on capital than large countries. In line with this prediction the paper shows that the Nordic countries undertook tax reforms in the 1990s, which lead to lower ratios of statutory corporate to wage taxes than in most OECD countries. The second part of the paper is devoted to tax base erosion by multinationals and how to combat it. Finally, the paper offers some concluding remarks on redistribution and the pressures of tax competition.